Published 19:58 IST, January 27th 2025
Explained: Why Is Chinese AI Startup DeepSeek Creating Anxiety in US?
The rapid progress of DeepSeek raises questions about America's lead in the AI race.

In a development that has sent ripples through the tech industry and financial markets, Chinese AI startup DeepSeek has achieved significant breakthroughs, outpacing American counterparts with a fraction of the investment. This comes despite stringent U.S. export controls on high-end semiconductor chips, revealing a potential flaw in America's strategy to contain China's technological advancement.
DeepSeek's latest model, R1, launched on January 20th, the day Donald Trump took oath of office, has quickly climbed to the top of Apple's App Store, showcasing capabilities akin to those of OpenAI’s o1 model. Not only does it handle complex challenges with an explainable chain of reasoning, but it also excels in areas like coding and mathematics, areas where "reasoning" models thrive.
What now?
The financial implications of DeepSeek's success are profound. The company's ability to develop sophisticated AI with significantly lower costs - reportedly around $6 million for training its models - is causing a stir, especially among investors in tech giants like Nvidia. Nvidia, known for producing the world's leading AI chips, saw its stock prices decline both on Friday and in subsequent overnight trading, contributing to a dip in the Nasdaq index. This scenario is particularly alarming as companies like Meta have ramped up their investment, planning to spend between $60 to $65 billion this year on AI projects, highlighting the pressure to keep pace with competitors.
Were the restrictions on chip exports useless?
The narrative around DeepSeek's rise challenges the effectiveness of U.S. export bans on cutting-edge technology. Although DeepSeek had already secured 10,000 Nvidia H100 chips before the 2022 sanctions, the company's CEO has acknowledged the challenges posed by these restrictions, as per a report from Axios. However, this scarcity appears to have fueled innovation rather than stifled it, echoing the adage that necessity breeds ingenuity.
Here is what else you need to know
Originally spun out from a Chinese hedge-fund, DeepSeek's focus has been on foundational AI research rather than immediate consumer applications, a strategy that contrasts with Silicon Valley's market-driven approach. This emphasis on basic research might be giving DeepSeek an edge, suggesting that open-source and collaborative research could sometimes outstrip the proprietary models favored by U.S. tech giants.
The U.S. tech community and policymakers are now grappling with the implications. The rapid progress of DeepSeek raises questions about America's lead in the AI race. There's a growing concern that the U.S. might be losing ground in a domain where it was once considered unassailable.
The situation poses a strategic dilemma: should the U.S. rethink its policies on technology export or perhaps shift focus back to fundamental research rather than solely on commercial applications? As the global tech landscape evolves, DeepSeek's success story is a compelling case study in how constraints can lead to breakthroughs, potentially reshaping the dynamics of global tech competition. It is also a lesson for other nations. Investment in R&D pays off.
Updated 19:58 IST, January 27th 2025